London close: Stocks firmer as US prices rise less than expected

London stocks continued their recovery from recent sell-offs on Wednesday, as investors digested an inflation report from across the pond showing price growth falling less than expected in April.
The FTSE 100 ended the session up 1.44% at 7,347.66, and the FTSE 250 was ahead 1.35% at 19,647.15.

Sterling, meanwhile, was in negative territory, last trading down 0.04% on the dollar at $1.2311, and slipping 0.12% against the euro to €1.1682.

“Inflation has been a hot topic lately as there are growing concerns about a cost-of-living crisis,” said Equiti Capital market analyst David Madden.

“The US CPI report boosted volatility in the markets as fears briefly ticked up the Fed might look to continue down the path of aggressively hiking rates.”

Madden said traders were initially “spooked” by the fact that both reports topped forecasts as they felt the Fed might look to do another 50-basis point hike in the coming months.

“Immediately after the numbers, US index futures swung from positive territory to lower on the day, and European markets lost a lot of the gains they had made.”

In economic news from across the Atlantic, the rise in the cost of living in the US dipped last month, but not by as much as anticipated as food prices continued to run up.

According to the Department of Labor, on a seasonally-adjusted basis the annual rate of headline consumer price inflation slipped from 8.5% in March to 8.3% for April.

In month-on-month terms, CPI rose by 0.3% after jumping by 1.2% during March. Economists had forecast a modestly larger decline in the annual rate to 8.1%.

“Big simple binary response in the markets with yields up, dollar up, stock futures down, gold down,” said Neil Wilson, chief market analyst at Markets.com.

“Bitcoin, now tightly correlated with the Nasdaq and risk in general, fell sharply too. That would be the great inflation hedge against money printing right?

“Does it really change what the Fed does? I don’t think one hot CPI print makes a summer, but the core reading has spooked lots of folks who had got the wrong side of this and had tried to second-guess a softer reading than we got.”

On home shores, an estimated 1.5 million UK households faced being unable to pay food or energy bills this year, as the UK faced down recession.

The National Institute of Economic and Social Research, publishing its latest quarterly economic outlook, said real incomes were likely to decline by 2.4% this year, followed by a small rise in unemployment in 2023, to 5.1%.

GDP, meanwhile, was forecast to increase by 3.5% in 2022, after declining in the third and fourth quarters, before growing by just 0.8% in 2023 and 0.9% in 2024.

A recession is defined as two consecutive quarters of economic decline.

“The combination of shocks – Brexit, Covid-19 and the recent shocks to energy prices – is set to leave the incomes of people in the UK permanently lower,” the NIESR noted.

On the continent, German inflation hit a new record high in April as food and energy prices rose, according to figures released earlier by Destatis.

Annual inflation grew to 7.4% from 7.3% in March, with higher food prices contributing the most to the increase.

In March, the biggest contributor had been energy prices.

“What stands out in April 2022 is the above-average increases in food prices,” Destatis said.

“This is where the impact of the war in Ukraine is becoming more and more visible.”

Finally, China’s annual inflation rate rose more than expected in April as Covid lockdowns took their toll.

According to figures released on Wednesday by the National Bureau of Statistics, consumer price inflation rose to 2.1% in April from 1.5% in March, versus consensus expectations of 1.8%.

Producer price inflation, meanwhile, slowed to 8.0% from 8.3%, versus expectations of 7.8%.

On London’s equity markets, Compass Group jumped 7.39% after the catering group posted a jump in first-half operating profit, lifted its revenue guidance and announced the launch of a £500m share buyback as it hailed strong growth across all sectors.

HomeServe shares shot 13.45% higher following a report that Brookfield Asset Management was close to a takeover of the household repairs provider.

According to Bloomberg, the deal is set to value HomeServe at about $5bn and would be one of the UK’s largest take-private transactions this year.

CLS Holdings was 9.15% firmer after it updated its dividend policy and said it continues to trade in line with market expectations.

Elsewhere, Ashtead Group was boosted 1.89% by an upgrade to ‘outperform’ at RBC Capital Markets, while Watches of Switzerland rose 8.69% after an upgrade to ‘buy’ at Goldman Sachs.

Holiday giant TUI ascended 5.67% after saying it was confident bookings for this summer would be close to 2019 pre-Covid pandemic levels after first-half losses were more than halved.

Broadcaster ITV was 2.33% firmer after it reported “strong” first-quarter revenues, driven by a “robust” operational and financial performance throughout the period.

On the downside, telecommunications provider Airtel Africa was 3.28% weaker after its fourth-quarter numbers missed expectations.

Landscaping products supplier Marshalls tumbled 9.08% despite reporting higher revenue in the first four months of the year against strong comparators in 2021, as people took on home improvement projects during Covid pandemic lockdowns.

LXi REIT was also down, falling 3.66% after it announced an agreement to take over Secure Income REIT in a £1.5bn deal.

Market Movers

FTSE 100 (UKX) 7,347.66 1.44%
FTSE 250 (MCX) 19,647.15 1.35%
techMARK (TASX) 4,250.45 0.28%

FTSE 100 – Risers

Compass Group (CPG) 1,694.00p 7.39%
Prudential (PRU) 942.20p 6.70%
Pershing Square Holdings Ltd NPV (PSH) 2,560.00p 4.66%
Glencore (GLEN) 476.00p 4.50%
Burberry Group (BRBY) 1,547.50p 4.42%
Entain (ENT) 1,286.00p 4.21%
Rio Tinto (RIO) 5,357.00p 3.76%
Shell (SHEL) 2,316.50p 3.72%
BP (BP.) 419.90p 3.69%
Flutter Entertainment (CDI) (FLTR) 8,496.00p 3.61%

FTSE 100 – Fallers

Ocado Group (OCDO) 764.20p -3.44%
Airtel Africa (AAF) 135.60p -3.28%
AstraZeneca (AZN) 10,026.00p -2.15%
Bunzl (BNZL) 2,905.00p -2.12%
Admiral Group (ADM) 2,236.00p -1.89%
Smurfit Kappa Group (CDI) (SKG) 3,226.00p -1.89%
Mondi (MNDI) 1,565.50p -1.11%
Aveva Group (AVV) 2,100.00p -0.80%
Smith (DS) (SMDS) 313.90p -0.76%
Sainsbury (J) (SBRY) 231.40p -0.69%

FTSE 250 – Risers

Homeserve (HSV) 1,105.00p 13.45%
CLS Holdings (CLI) 210.00p 9.15%
Watches of Switzerland Group (WOSG) 931.50p 8.69%
SSP Group (SSPG) 222.10p 6.88%
Tullow Oil (TLW) 53.60p 6.24%
TUI AG Reg Shs (DI) (TUI) 229.40p 5.67%
3i Infrastructure (3IN) 358.00p 5.29%
TBC Bank Group (TBCG) 1,272.00p 5.25%
Moonpig Group (MOON) 216.20p 4.95%
WH Smith (SMWH) 1,434.50p 4.69%

FTSE 250 – Fallers

Marshalls (MSLH) 535.50p -9.08%
Polymetal International (POLY) 248.60p -4.38%
Darktrace (DARK) 400.50p -4.20%
LXI Reit (LXI) 137.00p -3.66%
Pantheon International (PIN) 278.00p -2.63%
Baillie Gifford US Growth Trust (USA) 163.40p -2.62%
Capricorn Energy (CNE) 202.60p -2.60%
CMC Markets (CMCX) 269.50p -2.53%
Trustpilot Group (TRST) 103.50p -1.43%
Centamin (DI) (CEY) 86.06p -1.42%

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Alexander Bueso and Abigail Townsend.

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